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ECB warns of hedge funds risk to stability

Hedge funds have created a 'major risk' to global financial stability for which there are no obvious remedies, the European Central Bank warned on Thursday in one of the bluntest official statements yet on the rapidly growing sector.

In a clear hint of rising official nervousness about the multi-billion-dollar industry, the ECB ranked an 'idiosyncratic collapse of a key hedge fund or a cluster of smaller funds' in the same category as a possible bird flu pandemic as the types of shocks that could trigger fresh disruption in financial markets.

The comments came in the Frankfurt-based central bank's latest 'financial stability review', which for the first time included a special section on hedge funds.